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Should Medicare HMO Benefits Be Standardized?

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Analysis of Medicare HMO marketing materials reveals a bewildering array of benefit packages, inconsistent descriptions of benefits, and even failure to list covered services, resulting in the potential for widespread confusion among beneficiaries.

In their article, “Should Medicare HMO Benefits Be Standardized?,” published in the July/August 1999 issue of Health Affairs, Peter Fox, Rani Snyder, Geraldine Dallek, and Thomas Rice argue that some benefits should be made standard for all Medicare HMO plans. The authors also believe that plans should use consistent language to describe benefits. About 6 million bene-ficiaries are currently enrolled under capitated arrangements in HMOs, which have wide latitude in benefit package design as long as Medicare benefits are included.

The analysis, which compares marketing materials of six large HMOs in the Los Angeles and Chicago metropolitan areas, finds three main sources of confusion:

The wide variety of benefits offered by plans and the numerous combinations of features make it difficult to compare plans and assess their value.

Plans use different wording to describe the same benefit: for example, one plan without a supplemental premium requirement states there are "no premiums," while another plan indicates "low or no monthly premiums."

Some plans fail to list all the benefits offered-particularly the Medicare benefits that plans are required to include. Consequently, enrollees may be unaware of services for which they are covered. The authors also interviewed government officials, plan representatives, large employers, and consumer groups to understand how standardization similar to that used for Medigap policies-which must conform to one of 10 packages outlined in federal legislation-might work for Medicare HMOs. A key argument against full standardization is that it would constrain HMOs' ability to design innovative new benefit packages, thereby curtailing consumers' choices.

The authors recommend partial rather than full standardization of Medicare HMO benefits in order to avoid these negative consequences while still addressing consumers' confusion. A good place to start, they say, would be with prescription drugs. HMOs could be required to: allow physician discretion to prescribe up to a 90-day supply of medication; impose annual, not monthly, dollar limits for benefit packages; and choose from among a limited number of copayment structures.

Facts and Figures

In 1998, 72 percent of Medicare beneficiaries enrolled in HMOs had a choice of more than one HMO, and 39 percent had access to five or more.

The greatest difficulty consumers face is comparing benefits that Medicare does not cover, such as prescription drugs, dental care, hearing aids, and vision care.

Following federal implementation of Medigap policy standardization, consumer complaints to state insurance commissioners' offices declined markedly. In Florida, complaints fell from 812 in 1990 to 178 in 1994.